ADVERSARY PROCEEDING: A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court.

ASSUME: An agreement to continue performing duties under a contract or lease.

CHAPTER 9: The chapter of the Bankruptcy Code providing for reorganization of municipalities (which includes cities and towns, villages, counties, taxing districts, municipal utilities, and school districts).

CHAPTER 20: An unofficial term describing the filing of a chapter 7 proceeding followed by a chapter 13. The chapter 7 eliminates unsecured debts while the chapter 13 handles continuing liens.

CLAIM: A creditor's assertion of a right to payment from the debtor.

CONSUMER DEBTS: Debts incurred for personal (as opposed to business) needs.

CONTESTED: Those matters, other than objections to claims, that are disputed but are not within the definition of an adversary proceeding.

CONTINGENT CLAIM: A claim that may be owed by the debtor. For example,where the debtor is a cosigner on another person's loan and that person fails to pay.

CURRENT MONTHLY INCOME: The average monthly income received by the debtor over the six calendar months before commencement of the bankruptcy, including regular contributions to household expenses from non-debtors and income from the debtor's spouse if the petition is a joint petition, but not including social security income and other payments made because the debtor is the victim of certain crimes.

DISCHARGE: A release of a debtor from personal liability for certain dischargeable debts identified in the Bankruptcy Code. A discharge releases a debtor from personal liability for dischargeable debts and prevents the creditors owed those debts from taking any action against the debtor to collect the debts. The discharge prohibits creditors from communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact.

Some creditors hold a secured claim. For instance, a lender holds a mortgage on a house or a lien on a car. A debtor does not have to pay a secured claim if the debt is discharged, but the creditor can take the property.

Even if a debt can be discharged, a debtor may have reasons why he wants to pay it. For example, a debtor may need to keep a car for transportation to work. To promise to pay that debt, a debtor must sign and file a reaffirmation agreement with the court. Reaffirmation agreements are voluntary.

Reaffirmation agreements can be canceled anytime before the court issues a discharge or within 60 days after the agreement is filed with the court, whichever gives the debtor the most time. The agreement will not be legally binding until the court approves it.

If a debtor reaffirms a debt and then fails to pay it, the debtor owes the debt the same as though there was no bankruptcy. The debt will not be discharged and the creditor can take action to recover any property where there is a lien or mortgage. The creditor can take legal action to recover a judgment against the debtor.

If the creditor becomes a judgment holder, and real estate is involved, with the judgment holder behind a bank loan or mortgage (deed of trust), ie, the judgment is after or junior to the bank, when the bank begins foreclosure on the debtor/borrower, the bank does not have to provide the creditor a notice of the trustee's sale. The creditor can be on the special request for notice list if there are surplus proceeds from an overbid. The form to receive notice is not on the Judicial Council website, but many title companies have a form.

The Bankruptcy Information Sheet tells the debtor that the debtor chooses the kind of bankruptcy that best meets his needs. The debtor may choose between:

• Chapter 7, where a trustee is appointed to take over the debtor's property. Any property of value will be sold to pay creditors. If the debtor wants to keep property, he has to execute a reaffirmation.

• Chapter 13, where the debtor keeps property, but must earn regular income and pay part of income to creditors. The court must approve a repayment plan and a budget. A trustee is appointed and will collect the payments, pay creditors, and make sure the debtor follows terms of the repayment plan.

• Chapter 12, which is like Chapter 13, but only for family farmers and family fishermen.

• Chapter 11, where the debtor may continue to operate a business, but creditors and the court must approve a plan to repay debts. There is no trustee unless the judge decides necessary; if a trustee is appointed, the trustee takes control of the business and property.

The Bankruptcy Information Sheet tells the debtor that if he already filed bankruptcy under Chapter 7, he may be able to change a case to another Chapter.

A bankruptcy may be reported on a credit record for as long as ten years. It can affect a debtor's ability to receive credit in the future.

The Bankruptcy Information Sheet explains that a discharge is a court order which states that a debtor does not have to pay debts. Some debts cannot be discharged. For example, a debtor cannot discharge debts for taxes; child support; alimony; student loans; court fines and criminal restitution; and
personal injury caused by driving drunk or under the influence of drugs. The discharge applies to debts that arose before the date of the bankruptcy filed. If the judge finds a debtor received money or property by fraud, that debt may not be discharged.

The Bankruptcy Information Sheet tells a debtor to list all property and debts in bankruptcy schedules. If a debtor does not list a debt, it is possible the debt will not be discharged.

At 9:30 am, the parties sign in with the presiding judge to be assigned a courtroom. Outside the door is a list of cases to be heard. Before checking in, the parties look for the line number of the case. There are multiple cases heard at the same time. Many of the attorneys know each other from having seen each other appear in court before, but they act like they are unfamiliar. There are even attorneys who know the presiding judge from when he was a police officer, but they still stand up at the podium with "Good morning Your honor" like they are meeting for the first time.

When the judge calls a case, and only the plaintiff shows up, the judge will send the plaintiff to the courtroom for default judgment prove up. When a defendant defaults, the plaintiff does not automatically get judgment. The plaintiff still has to prove damages to the court.

The parties are expected to go to settlement conference prior to being assigned a court for trial. The judge will ask the parties if they have met for settlement. There might be a local rule not allowing the judge for the trial to be the same judge for settlement, but this can be waived by the parties.

Once assigned a judge for settlement discussions, the parties meet with the judge in his office. This may take several hours depending on how many cases the judge is attempting to settle. The judge meets with the parties in the beginning for each side to hear the arguments of the other. The parties might present a trial brief with cases substantiating their arguments. Then the judge may break up the parties and speak with them individually.

If the parties are not able to settle, they will be on telephone standby to be assigned a courtroom when available. This means that if they are called at 6 pm, they must be at court by 9 am the next day, or if they are called at 9 am, they must be at the court by 12 pm the same day. Witnesses and parties who take the day off to appear in court should be prepared for this delay. The judge will ask the parties how long they think the trial will take, and question the parties on the amount of witnesses.

Californians who sold their homes as short sales are allowed to exclude from taxable income the amount owed to and forgiven by the mortgage company. The legislation increases the amount of mortgage debt forgiveness, and applies to homeowners who made loan modifications in 2009.

California Senate Bill 401 also assists renewable energy companies establishing financing to build projects in California. Federal economic stimulus grants received through the American Recovery and Reinvestment Act for renewable energy projects are not treated as income for tax purposes.

SB 401 is welcome news to homeowners who are continuing to lose their homes in a market where property values are going south. In July 2010, SFGate.com reported in "Contra Costa still heading south" that average assessed property values are decreasing throughout Contra Costa county from industrial Richmond to high class Danville.

The automatic stay stops a creditor from collection actions until or unless the bankruptcy court grants the creditor relief from the automatic stay.

In a loan secured by real estate, the creditor can seek relief from the automatic stay by claiming the creditor is not adequately protected by equity or the debtor does not need the property as part of the reorganization according to Bankruptcy Code Section 362. When making a motion for relief from automatic stay, the creditor might need to do an appraisal of the real property to evaluate what the equity is.

The borrower who files bankruptcy might still need to pay the lender when the borrower is trying to reorganize debt and the loan is part of the bankruptcy plan. In a Chapter 13 bankruptcy filing, the borrower who files bankruptcy is obligated to make post-petition payments.

Another way for creditors to terminate the automatic stay is for them to seek adequate protection payments. Bankruptcy Code Section 361 provides the following examples adequate protection of a party's interest in property: 1) a cash payment or periodic cash payments to the extent that the party's interest declines in value as a result of the debtor's actions; 2) additional or replacement lien to the extent the party's interest declines in value as a result of the debtor's actions; or 3) other relief, as will result in the realization of the "indubitable equivalent" of an entity's interest in property. The purpose of adequate protection is to maintain the status quo.

If a private money loan is underwater, the lender might be subject o cramdown or lienstripping. Cramdown is the involuntary court imposition of a reorganization plan over the objection of creditors. Lienstripping means liens being stripped off of the debtor's assets in a Chapter 11 or Chapter 13 bankruptcy filing, when there is not enough equity in the asset, after deducting senior liens from the property's current market value, to secure the unsecured, when the lien exceeds the value of the debtor's property. According to Bankruptcy Code Section 506, a lien is a secured claim to the extent there is value in the asset it attaches. To the extent the claim exceeds the collateral value, that portion of the claim is unsecured.

Debts fall into three categories: secured creditors, unsecured creditors, and post-petition. Failure to pay on secured property gives creditors the right to ask for relief from the automatic stay and proceed to seize the property. Unlike a Chapter 7, discharge of debts is not immediate. The debtor needs to come up with a plan to repay certain creditors, and then after payments to those creditors are made, the case goes to discharge.

The court appoints a Trustee who collects payments to distribute to creditors. David Burchard is the Chapter 13 Trustee for the Northern District of California, San Francisco and Santa Rosa Divisions. Lawrence J. Loheit is the Chaptr 13 Trustee in Sacramento. According to his web site, Loheit is a Sacramento native, and started in bankrutpcy in 1963 as the Assistant to the Chapter 13 Trustee. In 1976, Loheit was appointed as the sole Chapter 13 Trustee, by the now deceased Chief Bankruptcy Judge, Robert E. Woodward. A Trustee has a staff of accountants and attorneys. The percentage fee collected by the Chapter 13 Trustee varies but cannot exceed 10% of the sum received in each case for payment to creditors. Each Trustee has his/her own forms on their web sites for debtors when making filings so debtors and their attorneys should make sure they obtain the correct forms.

Attorneys' fees for Chapter 13 bankruptcy filings are discussed in the Bankruptcy Code and court procedures/rules, and may be disgorged if collected upfront when an attorney does not respond to objections by the Trustee, does not show up for 341 hearings, or a case gets dismissed.

After a bankruptcy filing, the case proceeds to a 341 hearing. A 341 hearing is usually the only court appearance a debtor needs to make. The Trustee heads the 341 hearings, which require the debtor to submit tax returns and bank statements as of the date of a bankruptcy filing. A case cannot go to confirmation until the 341 hearing is complete.

At a confirmation hearing, there are three calendars: confirmed, dismissed, contested. When a plan is confirmed, there are objections by creditors. A case may be dismissed for failure by the debtor to make payments to the Trustee for distribution to creditors. In community property states, when only one spouse files bankruptcy, the other spouse needs to be aware that spouses equally own all property earned or received during the marriage, splitting 50-50. In bankruptcy, all the community property each spouse owns jointly is part of the bankruptcy estate, regardless whether three is a filing by only one spouse. Examples of when a case may be contested include when a debtor tries to modify a plan in order to make payments, when a plan needs to be amended for missing information, or a 341 hearing is not completed.

Before borrowers and lenders discuss work-out or loan modification, the parties might sign a Pre-Negotiation Agreement (PNA). A PNA confirms: (i) rights and obligations of lender and borrower as to any loan modification or work-out; (ii) guidelines governing discussions and proposals relating to a modification or work-out; (iii) discussions won't change the existing loan terms until they agree to formal loan work-out/modification documentation; (iv) evidence of conduct and communications during the negotiations are inadmissible in litigation; and (v) neither party waives rights and remedies in agreeing to workout/ modification discussions.

Once signed, a PNA assists in before modification of the loan terms is reduced to a written agreement. The parties will not unknowingly waive rights contained in the existing loan. A PNA prevents lender-liability lawsuits brought by borrowers claiming the loan officer promised loan extensions or modifications. The lawsuits delayed foreclosures.

Signed by President Obama on July 2, 2010, the president allowed a second chance for taxpayers to claim the first-time homebuyer tax credit of up to $8,000 or the long-term homeowner tax credit of up to $6,500 with the purchase of a new residence. Taxpayers who have entered into a written, binding agreement to buy a qualified principal residence before May 1, 2010, have until September 30, 2010 to close on the purchase.

This extension provides tax relief for people who could not close by June 30, 2010 because of backlogs at lenders and federal programs involved in homebuyer loans. The three-month extension gives time for all new mortgages to be processed and not punish homeowners who have delayed through no fault of their own.

Without the extension, according to the National Association of Realtors about 180,000 homebuyers under contract by April 30, 2010, missed the June 30, 2010 closing deadline and would have lost the tax credit.

In the Byers case the district court judge imposed the anti-litigation injunction after the SEC filed a complaint against Stephen Byers, Joseph Shereshevsky and Wextrust entities, alleging a Ponzi scheme involving 240 Wextrust entities that allegedly defrauded investors of approximately $255 million.

On the day the SEC filed its complaint, the district court judge appointed a temporary receiver to investigate the financial condition of the Wextrust entities and determine whether the Wextrust entities should file bankruptcy. Along with the appointment of the receiver, the district court imposed an anti-litigation provision that prevented any person or entity from taking any action interfering with the assets, including filing lawsuits, liens, or encumbrances, or bankruptcy cases that would impact the assets of the receivership. The district court had jurisdiction over the assets and equitable discretion.

The Second Circuit noted that both the Ninth and Sixth Circuits have allowed similar anti-litigation injunctions. If a district court could not control receivership assets, then a receiver would be unable to protect them. The district court may enjoin nonparties once a receiver has been appointed if non-parties are given notice of the injunction. District courts may appoint receivers to remedy federal securities law violations. Creditors have no absolute right to file an involuntary bankruptcy case. A bankruptcy filing may be enjoined based on equitable discretion.

For the third party claimant who has suffered financial turmoil from an accident that is not the fault of his own, he might have to stay patient to get the best settlement, and balance the wait for money with the need to immediately pay off medical providers who might send their bills to collections.

The statute of limitations in California gives accident victims two years to file a lawsuit. After an accident, someone suffering from personal injuries should not stall in gathering medical reports and bills, and calculating lost wages. Negotiating for a settlement with an insurance company can take several months, eating up the time for the statute of limitations to creep up. People wonder why an insurance adjuster would delay settlement when he/she knows the claimant is entitled to payment, but like any other accounts payable, insurance companies like to pay later to see who is willing to wait for the best deal, rather than letting go of its money right away.

The insurance adjuster might appear friendly, asking to meet in person. Negotiating with an adjuster in person or meeting for a recorded statement is for the benefit of the insurance company, not the claimant. What the adjuster really wants is to evaluate the claimant as a witness in the event of litigation, and to see whether the claimant is likable to a jury.

As to medical specials, insurance companies contend a claimant or potential plaintiff is entitled to receive only the amount actually paid to the medical provider for medical specials. They want to reduce the amounts payable to claimants based on adjustments made by the plaintiff's own insurance. For example, where a person's health insurance has deals with a medical provider for a lower group fee for taking the type of health insurance than what the provider normally charges.

Insurance companies base the reductions on California Court of Appeal cases upholding reductions of plaintiff's medical special damages such as Hanif v. Housing Authority (1988) 200 Cal.App.3d 635; Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th 298; Greer v. Buzgheia (2006) 141 Cal.App.4th 1150; Katiuzhinsky v. Perry (2007) 152 Cal.App.4th 1288; Olsen v. Reid (2008) 164 Cal.App.4th 200.

In Hanif v. Housing Authority (1988) 200 Cal.App.3d 635, plaintiff Sajjad Hanif, was injured in a vehicle accident as a pedestrian when a vehicle on the property of defendant Housing Authority of Yolo County hit him. After trial, judgment was entered against defendant. Plaintiff's medical bills had been paid by Medi-Cal. The defendant objected to the introduction of plaintiff's bills to the extent they exceeded the amounts paid by Medi-Cal. The Court of Appeal modified the amount of medical specials awarded to plaintiff and affirmed the modified award. The Court of Appeal decided the collateral source rule did not apply because the bills had been paid by Medi-Cal so contracted write offs were not special damages. The Court of Appeal distinguished Medi-Cal from collateral sources. Medi-Cal is not coverage paid by the recipient, but a social benefit.

When a debtor files Chapter 11, a trustee might be appointed to evaluate the debtor's properties, reviewing whether they generate income, what the taxes are, loans that need to be paid. If the debtor is not able to come up with a reorganization plan, the debtor might dismiss the case or convert to Chapter 7. If the debtor decides to dismiss, the court might require the debtor to file a motion to dismiss to show the dismissal is in the debtor's best interests. If the bankruptcy filing was voluntary, the court will likely require the debtor to pay for the administrative fees such as the trustee's fees, trustee's attorney's fees, trustee's accountant's fees if the debtor decides to dismiss since resources were spent to evaluate possible reorganization for the debtor. The resources spent on the evaluation might be more than the value of the assets in the case. The court could decide to make the debtor only pay for the value the estate would generate if it were to convert to Chapter 7 rather than the actual fees to date by the trustee and trustee's advisers. If so, it would be up to the creditors to proportion their fees.

In a Chapter 11 dismissal, the trustee might also request that the debtor cure some of the debts to the secured creditors prior to dismissal, such as paying off the amounts in default. However, the court might allow for a dismissal without cure if there have been no notices of defaults by the creditors, and let the debtor handle the negotiations on the debts after the dismissal as if the debtor never filed for bankruptcy.

Chapter 11 differs from Chapter 7 which relates to liquidation bankruptcy. In Chapter 7 the business ceases operations, a trustee sells its assets, and then distributes the proceeds to its creditors. A Chapter 11 case begins with the filing of a petition with the bankruptcy court. A petition may be a voluntary, which is filed by the debtor, or involuntary, which is filed by creditors. The courts charge a $1,000 case filing fee and a $39 miscellaneous administrative fee.

Upon filing a Chapter 11 bankruptcy petition, the debtor automatically becomes a "debtor in possession" until a trustee is appointed. The debtor-in-possession keeps possession and control of its assets while undergoing a reorganization. A debtor in possession can acquire financing and loans on favorable terms by giving new lenders first priority on the business' earnings, reject and cancel contracts. While the automatic stay is in place, litigation against the debtor is stayed.

Communications between an attorney and client that had taken place at the client's mediation were not protected by section 1119 and were admissible in a subsequent action involving a fee dispute between the client and lawyer.

In Porter, the Porters, former clients of Wyner Tiffany, after resolving a case through mediation, brought a suit against their lawyers for allegedly breaching their fee agreement. During the mediation, Wyner Tiffany advised the plaintiffs to drop a lost earnings claim against defendants and assured the plaintiffs they would be paid out of the attorney fee recovery. In alleged reliance on this representation, the plaintiffs dropped a lost earnings claim and the case settled. At trial in the case against Wyner Tiffany, testimony was provided by the Porters and Wyner Tiffany on what was said during mediation. The alleged conversation took place outside the presence of the mediator and the other parties participating in the mediation. The Porters obtained a judgment against Wyner Tiffany.

The court of appeal rejected Wyner Tiffany's argument that their communication with the Porters was subject to mediation confidentiality because Evidence Code Section 1119 "was never intended to protect communications or agreements between a client and his own counsel should a conflict arise between them." Evidence Code Section 954 codifies the attorney-client privilege and Evidence Code Section 958, through its waiver procedure, allows a client to seek appropriate recourse if something places the client and the attorney on a course of conflict.

Extension of mediation confidentiality to the attorney-client relationship would render Evidence Code Section 958 a nullity. Expanding mediation confidentiality to cover communications between a lawyer and her client would undermine the attorney-client relationship and create a chilling effect on the use of mediations because clients would be precluded from pursuing remedies against their own counsel for deficiencies occurring during the mediation as well as representations made to the client to induce settlement.

Issuers effecting Rule 10b-18 Purchases in a trading session immediately following a market-wide trading suspension are allowed to purchase up to 100% of the security's ADTV.

Investors reviewing financial reports of issuers that buy back their own shares should review periodic filings for disclosures. The SEC requires periodic disclosure of all issuer repurchases of shares or other units of any class of the issuer's equity securities that are registered by the issuer pursuant to Item 703 of Regulations S-K and S-B. Issuers will be required to report the following in a table on those Forms:

• the total number of shares (or units) purchased (reported on a monthly basis)
• the average price paid per share
• the total number of shares (or units) purchased as part of a publicly announced repurchase plan or program
• the maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs

The SEC also requires footnote disclosure of the principal terms of publicly announced
repurchase plans or programs, including:

• date of announcement
• share or dollar amount approved
• expiration date (if any) of the plans or the programs
• each plan or program that has expired during the period covered by the table, and
• each plan or program that the issuer has determined to terminate prior to expiration or under which the issuer does not intend to make further purchases.

Investors should make note of required footnote disclosures of the nature of any repurchases that were not pursuant to a publicly announced repurchase plan or program.

The Rule specifies the highest price an issuer may bid or pay for its common stock. The same price condition applies regardless of where the common equity is traded. The Rule requires:

• Issuer repurchases may be made at a price that does not exceed the highest independent bid or the last independent transaction price, whichever is higher, quoted or reported in the consolidated system.
• Issuers whose securities are not quoted or reported in a consolidated system may purchase at a price that does not exceed the highest independent bid or the last independent transaction price, whichever is higher, displayed and disseminated on any national securities exchange or on any inter-dealer quotation system that displays at least two independent priced quotations for the security.

Besides pricing conditions, there is a volume condition. The volume condition includes block purchases for purposes of the 25% volume limitation on Rule 10b-18 Purchases and for purposes of computing an issuer's four-week ADTV. ADTV for this purpose is defined as the average daily trading volume of the applicable security during the four calendar weeks preceding the week in which the Rule 10b-18 purchase is to be effected.

An issuer can make one block purchase per week, in lieu of purchasing within the 25% volume limitation. The issuer may not make any other Rule 10b-18 Purchases on that day, and the block purchase will not be included in computing the issuer's four- week ADTV.

A block generally is defined under Rule 10b-18 to include a quantity of stock that:

• has a purchase price of $200,000 or more;
• is at least 5,000 shares and has a purchase price of at least $50,000; or
• is at least 20 round lots of the security (2,000 shares) and totals 150 percent or more of the trading volume for that security.